Why Government as Business Doesn’t Work, at Least in Rhode Island

For comment on the Rhode Island Public Expenditures Council (RIPEC) report on the Economic Development Corp. (EDC) in his Sunday Providence Journal article, Paul Grimaldi turned to the Massachusetts affiliate of the free-market RI Center for Freedom & Prosperity, the Pioneer Institute. While the general sentiment that CEO Jim Stergios expressed is apropos, it is unfortunately not correct:

“The high unemployment rates you see in those areas are similar to those in Rhode Island.”

New England is the only region of the nation for which the U.S. Bureau of Labor Statistics breaks unemployment down to the city/town level, allowing readers to see, by the following map, that Massachusetts is clearly not a bright spot surrounded by Rhode Islandish darkness:

Those results are the 12-month average unemployment from August 2011 to July 2012, and the down-turning economy has actually been expanding the darker areas of Massachusetts over the past several months. It would appear that Mr. Stegios isn’t aware of just how bad things have gotten in Rhode Island.

The illustration provides the geographic picture. but what about population? Collecting the populations of every Massachusetts city or town depicted as red or darker — that is, 8% unemployment or higher — shows that, scattered throughout the Bay State are towns that would amount to about one-and-a-half Rhode Islands if they were clustered together.

At this point, though, unemployment under 10% would feel like a boom, in the Ocean State, so it makes more sense to compare populations living in municipalities with unemployment above that line. By that measure, the entire state of Massachusetts can only come up with two-thirds of the population that Rhode Island can, and as the map shows, much of that is in the Greater Providence area.

None of this, by the way, takes into account the significantly different experiences of the two states when it comes to residents’ giving up on work or moving out. The national charts at that link bring into question another statement in Grimaldi’s article:

What RIPEC found, unsurprisingly, is that there are a number of states that handle economic development differently, and with far better results, than Rhode Island.

Judging by employment, as well as Rhode Island’s low, low ranking in various national indexes, there are arguably no states that don’t have better economic development results than Rhode Island, so one could pick and choose from the complete array of options that its 49 sister states are using.

A large part of the Ocean State’s problem may be the top-down, government-centric mentality that RIPEC’s report actually furthered. Consider this statement from Women & Infants Hospital President and CEO Constance Howes, who also chairs the Governor’s Workforce Board:

… she said a bigger question must be tackled: “How is any business successful at achieving big goals?”

She sees three necessities: Set a clear, inspirational vision; create a focused plan that involves all who will be affected; and execute the plan while holding people accountable.

The problem with this approach is that, in a free society, the government cannot hold people accountable for the most important activities in economic development — namely economic activity. And when it tries to do so, it makes things less efficient, less innovative, and more prone to failure. A contributing factor in the collapse of 38 Studios, for example, was the need for the company to meet a hiring goal set by the state as a condition of the $75 million loan for which Rhode Islanders appear liable, now that the video game company spent itself into oblivion. (The bigger factor, of course, was the use of public debt to support a business that couldn’t find private investors for its project.)

When it comes to government economic development efforts, accountability is likely to mean that public officials take credit for successes for which they had little to do and pass off blame for their own failure to others. A commenter to a previous post on the Current counts the state’s entire $4.6 billion tourism industry as a “return on investment” for $500,000 in EDC spending. The EDC’s Web site puts “tourism and hospitality” at $4.9 billion, but that represents the work efforts and investments of thousands of private citizens, not the government’s paltry and inefficient contribution.

That sentiment brings the topic neatly back to the initial comparison between Massachusetts and Rhode Island. In a letter to the editor, on Saturday, Narragansett resident Marianne Chronley notes that she carpools to Taunton, Massachusetts, for work, because she and her four co-commuters find that the pay across the border is so much higher as to justify the travel. The national rankings of states’ business competitiveness probably do not comprehensively compare the costs of regulations and taxes at the local level, but one could surmise that businesses with lower expenses would be able to pay more-competitive wages.

More likely, though, businesses that need to compete simply set up shop in those areas of the New England unemployment map that look more like summer than autumn. Worse, it appears that Rhode Islanders have been concluding that the jobs are worth the commute, but Rhode Island isn’t, so they’ve been moving over the border — looking to Massachusetts for economic activity and real estate, just as the Providence Journal’s Paul Grimaldi looked to Massachusetts for a free-market perspective for his article.

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